Before I share the five ways to improve cash flow for your beauty brand, here’s something for you: Cash is the fuel, and profit is the ultimate goal for a venture.
What is Cash?
Revenue is cool, profit is the goal and cash is the fuel!
Cash is the real or virtual money available at any point in time to make a payment of any kind.
Cash vs. Profits
Only looking at the P&L statement can hide cash flow issues that might hit you sooner than you can even anticipate.
Why is Cash Important?
Meet recurring expenses
Without a healthy cash flow, beauty brands shy away from recurring expenses necessary to support growth
Investment in growth
Invest in revenue-generating activities rather than idle-sitting inventory for example.
Support from external sources of funding
Growth investors and banks love a healthy cash flow
Pay Interest and Taxes
A good cash flow helps avoid surprises and defaulting on you interest or taxes.
5 Ways to Improve Cash Flow for a Beauty Brand
1. Efficient Cash Conversion Cycle
Break down all cash conversion rounds within the full cash conversion cycle into its steps and improve the cycle time or/and cash output.
2. Increase Profitability of Loyal Consumers using Premium Pricing
Brainstorm & choose ideas to make your loyal consumers fund your cash flow. E.g. Advanced orders for special collections, priority launches and Bonus Loyalty Points.
3. Reduce Stock Days of Inventory
Better forecast sales and rotate inventory better instead of stocking up, and do the profit-volume analysis for your assortment atleast once a year.
4. Reduce Debtor Days
Create a list of debtors, segment and work out an offer by segment that can help you get paid faster. Debtors could be retailers or distributors.
5. Increase Creditor Days
Again, brainstorm ideas on creating an offer for your creditors which delivers overall higher value to them but with increased credit for you.
Jump Brand Case Study-Improve Cash Flow for a Beauty Brand
At a Jump Partner brand,
-we wrote down all the steps for the complete CCC including sales planning rounds, sourcing rounds, manufacturing rounds, delivery rounds, billing rounds, payment rounds, receivables rounds and then,
-focused on one initiative to improve one-two cash levers at a time for a quarter to reduce the Cash Conversion Cycle Days.
-We increased the price for the hero products and then shared a portion of the increase with the supplier, as an incentive to give us 7 days of extra credit & reduced minimums
-helping the brand increase its cash flow by 15%, which was then invested in growth initiatives to deliver overall profitability increase of 12%, QoQ over the previous year.
SUMMARY
If your strategy is average, you can hustle and survive for 1-3 years, if your people are not that capable, you can leverage the momentum and divide responsibilities asymmetrically to survive for a year ; if your execution is average, you can still maybe survive six months to one year,
BUT
If your cash flow is bad, you are dead within a few weeks!
Every business initiative costs & takes more time than anticipated, and we live in an uncertain world, so, if you don’t have healthy cash flow to meet the uncertainties of tomorrow and growth plans, not to mention your current expenses, your early-stage beauty brand might not see the light at the end of the tunnel.
Investors and banks help those beauty founders who help their cash flow better.
Five ways you can improve your cash flow is
–Efficient Cash Conversion Cycle
-Up Profitability of Loyal Consumers with Premium Pricing
-Reduce Stock Days of Inventory
-Reduce Debtor Days
-Increase Creditor Days
Better forecast sales and rotate inventory more efficiently instead of stocking up, and do the profit-volume analysis for your assortment atleast once a year.
For the free & full cash flow strategy and all the tactics, book a free call here!
Do check out my article on 7 strategic ways to up profits during tough times
Jump accelerates women-led, early-stage beauty brands with a”fit, fundamental & fully executable” solution using first principles of diffusion